Is it a good idea to invest in gold bars? That was one of the questions I had in mind when the COVID 19 pandemic hit. I knew something big was about to happen and it did. Stock markets around the globe went jittery, financial markets went crashing, and even new cryptocurrencies were affected by the financial crisis that started last year.
Gold assets became the investment vehicle for many when other assets were going sideways.
What Are Gold Bars?
A gold bar is the same thing that people refer to as gold bullion. Sometimes they call it a gold ingot, but there are slight differences between bars and ingots. These bars are definitive items that provide value for our money.
They are very tangible assets and have intrinsic value. They are very liquid, which means they are easy to convert into cash since there is a lot of people who want to purchase them. You can invest in gold bars by owning them or owning stocks or options that are based on them.
How Gold Bars Are Made
Bullions or gold bars are an amount or weight of gold that is minted in bulk before it is used in coining or valued by its weight. It should be a physical gold (or other precious metal) of the highest purity—at least 99.5% to 99.9% purity.
Bullions are kept as assets by central banks, states, or other government institutions. Bullions are often shaped into bars that taper downwards for easy stacking. They are made either by pouring melted gold into a cast or by stamping (i.e. minting) on rolled gold sheets.
Gold Cast Bars
When people talk about bullions, they usually think that it’s all the same. There are two basic types of bullion bars, which are:
- Poured or gold cast bars
- Pressed or minted gold bars
Gold poured bars or simply bars don’t have that styling and perfect-looking sheen. They look like raw gold, which collectors like. They are also known as gold cast bars. They are available in different weights such as 1, 2 ½, 5, 10, 20, and 50 ounces.
Minted Gold Bars
Minted gold bars are also called ingots. They are the shiny bars you see on TV that have a more standard size, weight, and shape. Minted gold bars usually have a brilliant shine and a nice finish. These bars have a higher production cost and thus they usually have a higher premium.
What Are They Used For?
Gold bars are usually used for three different purposes: they function as personal assets, a commercial finance tool, and a reserve currency.
Used as a Personal Asset
Remember that gold can be turned into jewelry that you can wear. Some people collect gold bars not as an investment but as part of their collection and personal asset.
Used as a Reserve Currency
Different countries still maintain their gold reserves through their central banks. This means a lot of countries still haven’t moved off the gold standard and this precious metal is still seen as an accepted type of currency.
The countries that have the biggest gold reserves are:
- United States
The countries you see on this list are arranged beginning with the one that has the largest gold reserve to the smallest. The United States has around 8,134 metric tons of reserved gold while Switzerland has about 1,040 metric tons.
Used as a Commercial Finance Tool
Gold is also used by investors, businesses, and world governments as a commercial finance tool. They are made part of one’s asset holdings and thus diversifying their asset portfolios. Gold allows them to borrow at lower rates by reducing their bond yields.
Gold ETFs on the other hand accumulate large amounts of gold bars and then sell their shares to would-be investors. These shares are also known as paper gold since a shareholder doesn’t get to possess the actual gold bars or keep them in their possession. What they have are paper assets that represent the precious metals that are being stored in secured facilities.
Different Formats of Gold Bars
Gold in these bars or bullions is measured by governments and other authorities in troy ounces (or just ounces). An ounce is around 31.1034768 grams. Note that there are US customary units and British weights, which sometimes make a bit of a difference in the formats of gold bars.
There are two general formats, which are the following:
- Traditional: these gold bars come in the usual increments of 1, 5, 10, 20, 50, 100 grams.
- Combibars: these are gold sold as smaller pieces. Each combibar will contain around 50 grams of gold, which will allow you to sell individual single-gram pieces. This is the format that you will want to use in case you want to sell portions of gold bars instead of the entire whole of it.
One Ounce Gold Bars
One-ounce gold bars are those smaller and flat bars of gold and they contain 1 ounce or 31.105 grams of gold. They are sold in different brands including Valcambi, Perth Mint RCM, Asahi, Credit Suisse, and others.
10 Ounce Gold Bars
10-ounce gold bars fall into the medium-size category. Note that many smaller non-standard size gold bars are smaller than 10-ounce bullions. Gold bars of this type or format is easier to handle and store due to their size. They also hold a lot of value, which makes them a really popular option for many investors. The best producers of 10 oz. gold bars are Perth Mint, PAMP Suisse, Asahi Refining, Valcambi Suisse, and Credit Suisse among others.
1 Kilo Gold Bars
These gold bullions contain 1 kilo of 0.999 fine gold or around 32.15 troy oz. Do take note that the conditions of these bars will vary from one to another depending on the company that minted them. The two of the most popular brands of bars of this size are PAMP Suisse, Valcambi Suisse, and Heraeus.
400 Ounce Gold Bars
400 oz. gold bars are also known as Good Delivery Bars. This kind of bar will weigh 12.4 kg or about 27.3 lbs. – that is about the same weight as an average dumbbell. They have the following dimensions:
- Length: 210 to 290 mm
- Width: 55 to 85 mm
- Height: 25 to 45 mm
Note that 400-ounce bullions are usually manufactured as cast bars. They are produced widely by government mints and private refineries.
Smaller Gold Bars
Smaller gold bars usually include the combibars that we mentioned earlier. The smallest of these bars are only one gram or 0.32 troy ounces. That is the smallest gold bar that any investor can purchase. Note, however, that the premium on these smaller bars tends to be higher since each one of them requires the same amount of effort to produce as large bullions.
What Makes Gold Bars a Good Investment Option?
You can say that gold is the investment vehicle for many investors when other types of investment are going sideways. Stock markets around the globe can go jittery, financial markets can crash and even new cryptocurrencies can be negatively affected by different factors.
The only asset class that has shown robustness and steady growth despite all the market upheavals that we have seen in the last few decades is gold and other precious metals. That is why when times get tough, investors bet on gold.
Why Many Investors Prefer to Buy Gold?
It’s not just the investors. Even an average person who wants to save money for retirement or future needs should consider investing in gold. This asset type provides a good counterpoint to other types of assets and securities, including paper assets (i.e. bonds, stocks, etc.).
People see gold as an asset that can store value. On its own, gold does not produce any cash flow. However, it is perceived as something valuable throughout the ages. Some financial experts see gold as a kind of hedge against rising inflation rates.
Gold has a historical track record of steady returns. This asset is also very liquid. Remember that there will always be people who will be more than happy to purchase gold. You can purchase your gold assets today, allow the prices to increase, and then sell them when you need the money. Some experts even describe it as an effective portfolio diversifier.
Consider the following qualities of this precious metal:
- Liquidity: there are always a lot of people who will be interested in gold investments. You can buy gold-based assets and you won’t have to worry years later if you want to convert them into cash.
- Diversification: gold is an asset that is not directly correlated to other assets, except for, to a certain degree, paper assets as it was pointed out earlier—but even that is moot. Investing in gold is a great way to diversify your portfolio and reduce your risk exposure.
- Defensive store value: gold is a kind of defensive investment. When economies around the world plummet, you can move your funds into gold assets to keep them safe from a volatile market. You can then wait for it all out until everything becomes stable again.
- Returns: even though gold doesn’t always beat the prices of stocks and bonds, history has shown us that it has outperformed the stock market at the toughest times. Time and time again, when the stock markets experience losses, gold has given steady returns.
- Low correlations: the performance of this asset is sometimes inversely correlated to the stock market. There are times when the stock market goes up, gold prices go down, and when the stock market goes down, gold prices go up. This phenomenon gives you a chance to pull out of the stock market and then ride the uptrend of gold prices by timing your exits and entries.
Pros and Cons of Gold Investments
Remember that just like other investments, gold also has its pros and cons. There are still risks that you need to take into account before you invest in this asset. Let’s go over the pros first and then we can look at the drawbacks after that.
- Gold is relatively easy to purchase and to sell whether you’re dealing with gold bars and coins or gold-related assets.
- It has a significant potential upside.
- Owning precious metals, e.g. gold jewelry, can be quite satisfying.
- You can test the gold content of an item before you purchase it.
- It’s a great asset to use as a buffer or protection when the stock market is not performing well.
- It helps to diversify your portfolio to reduce your risk exposure.
- The appreciation potential of gold is not clear since market drivers and signals aren’t present.
- The storage and insurance cost of the actual gold is very expensive and making these arrangements can sometimes be quite a hassle.
- If you are purchasing rare or old gold coins and other jewelry, it can be difficult to verify their authenticity, and hiring someone to validate them can be expensive as well.
- Yes, gold is a very liquid asset but its spreads can sometimes be a bit large.
- Gold dealers often charge high premiums when you purchase this asset.
Gold Spot Price History
The spot gold price isn’t exactly one that is headed in an entirely upward direction. No asset has a price behavior like that—and gold price goes up and down. The spot price for this asset is computed per ounce, gram, or a kilo of gold.
If you’re interested in seeing a gold spot price chart that goes back 30 years, you can see one here.
From its historic price, we can see that gold had its heyday in the late 2000s. For example, its price ranged from $270 to $1,000 an ounce back in 2008. Do you recall what happened during those years?
The economy was experiencing a slump back then. Investor sentiment and demand for gold went up as the economy sunk even further. Because of that, the price of gold went up as high as $1,800+ per ounce.
The price pattern is not a meteoric rise that never falls, however. It had a pretty good high price in 2011 at $1,864. However, it went on a generally downward pattern until it showed some resurgence from 2016 to 2019. By April 2020 gold spot price had declined lower than what it was about a decade ago. To date, in 2021, gold spot prices are still around $1,700 and up, which is still lower than what it was a decade ago.
Investing in Gold Bars: Direct and Indirect Options
Now that you know the pros and cons and the potential risks that you will take in case you invest in gold bars, we can now move on to your investment options. There are several ways on how you can invest in this asset.
Your options include the following:
- Buying gold bullions
- Buy gold funds
- Buy gold mining stocks
- Investing in gold futures options
- Invest in ETFs that own gold mining stocks
Apart from purchasing gold bullions, the only direct way that you can obtain actual gold is by rolling over your Roth IRA to a Gold IRA—though you will still not be able to keep the gold in your possession when you do that.
But when your Gold IRA matures, which is about the time when you will retire, you can dispense with the gold, either by selling it at its current value or by having the gold transferred into your possession and care.
The other options in the list above will allow you to indirectly buy the gold, which means you are indirectly investing in gold bars. You will be investing in firms, stocks, and other financial instruments that deal with gold assets.
Tips in Buying Gold Bars
In case you’re ready to invest in gold bars, here’s a few tips that might come in handy as you consider your options.
Know the Difference Between Bars and Coins
There are benefits to buying either gold bars or coins. The following is a quick comparison of the two.
Why Buy Gold Bars
- Ideal for high-volume diversification
- Easy to store
- You get more ounces for less
- Privately minted
- The average premium is much lower
- Very liquid because it is easy to buy and sell
Why Buy Gold Coins
- Gold coins offer more variety when it comes to origin, purity, rarity, grade, price, design, and other factors
- It can be used as legal tender in some countries
- They can make great gifts
- It has numismatic potential
- It is a liquid asset
Purity of the Gold Bar
Make sure that you’re getting the right type of gold into your portfolio. Remember that the only accepted purity of gold is 99.5% to 99.9%.
Check which refinery the gold came from. This helps you ascertain the quality and purity of the gold. Some of the biggest refineries in the world include the following:
- Royal Canadian Mint
- Perth Mint
- Royal Mint
- Rand Refinery
- Tanaka Kikinzoku Kogyo
Check for the weight and purity tolerance levels of the gold before you purchase them. Some have either a + or – tolerance on these factors. Don’t get worried if the tolerance levels on both weight and purity are NIL. You’re still getting the right value for the gold that you purchased.
Fineness on the other hand shows the purity of the gold in parts per thousand. You usually see something like 999.9 minted on the gold, which we have mentioned earlier. That indicates the fineness of the gold.
This refers to the size of the gold and is usually expressed in grams. There are a variety of denominations such as 5, 10, 50, 100, and others. There are also 1-kilogram denominations as well. Experts recommend that you keep your purchases at the lower denominations, which allows for higher liquidity.
Gold certification can be provided by governments, banks, mints, and jewelers who sell gold coins or bullions. Ask for certification from the seller. This will help you determine the authenticity of the gold you want to buy.
Buy Gold in Workable Sizes
It may be in your best interest to purchase gold only in workable sizes such as 1, 2 ½, 5, 10, 20, and 50 ounces. Remember that the market price of this precious metal is usually determined by its weight. It is recommended that you choose gold within the ranges mentioned since they are easier to handle, easier to transport, very liquid, and they can fetch a better price for you in case you intend to sell them later on.
Note that anything bigger than 50-ounce gold bars may be too heavy and will incur higher fees.
When you purchase gold bars, you should always check the packaging first. It helps you determine the purity of the gold once it is delivered. The gold should never be taken out of its packaging for whatever reason. Gold manufacturers and third-party handlers never take the packaging off and so should you.
Picking up where we left off, if you notice that the packaging of the gold has been tampered with, then you shouldn’t accept it as delivered. You should also ask for a refund or replacement.
If you notice anything wrong with the weight, size, certification, packaging, purity, denomination, tolerances, and dimensions of the gold, then you shouldn’t buy it. Understanding these details helps you avoid getting ripped off.
Remember that you should do your research and do a price comparison. Don’t just go for one online seller, dealer, or gold distribution. If you can find positive records on the BBB about them then that is a good sign.
Before buying, compare the fine print. Check the return policy—real gold chains will offer both a full-refund and an exchange of goods as part of their guarantee. If they can’t do that then you’re better off buying gold bars from someone else.
When you invest in gold bars, you are diversifying your portfolio and you are banking on the historically favorable price performance of gold. Remember that this investment is not for everyone and it also poses a certain degree of risk.
It is also interesting that Warren Buffet does not recommend investing in gold or other precious metals. On the flip side, another finance guru, Robert Kiyosaki, recommends it.
There are varying opinions about it but the bottom line is that you should weigh the risks and the advantages of gold investments and see for yourself whether it is a good fit for your investment style.